Rachel Reeves under pressure to raise taxes

A leading think-tank urges Rachel Reeves to raise taxes to address a £40bn budget gap.

Rachel Reeves faces pressure to increase taxes amid growing deficit

The National Institute of Economic and Social Research has called on Rachel Reeves to raise taxes to tackle a projected government deficit exceeding £40 billion. This figure has surged due to an economic slowdown and unexpected inflation. NIESR suggests a 5p increase in income tax rates to fill this budget gap, although it also advocates for a comprehensive review of the tax system. The increase in taxes could help Reeves rebuild a fiscal buffer of nearly £10 billion while addressing welfare issues and rising public sector wage demands. Speculation continues about which specific taxes may be raised as Labour grapples with meeting manifesto promises amidst fiscal challenges.

This situation sends a clear message about the challenges facing Labour under Reeves's leadership. The proposed tax rises highlight a growing need for fiscal responsibility, but they also risk backlash from both the public and party members. Critics, including some Labour backbenchers, worry that fulfilling tax increase plans could lead to discord within the party, especially after recent successes in challenging budget cuts. As inflation and the cost of living continue to strain households, the pressure on Reeves to balance practical financial solutions with political promises intensifies.

Highlights

The outcome of these fiscal discussions will likely define Labour's economic credibility going forward.